money laundering

Supreme Court: In a major blow to Senior Congress leader P Chidambaram, the Court has rejected his plea against the Delhi High Court order rejecting his anticipatory bail plea in the INX Media case being probed by Enforcement Directorate (ED). The bench of R Banumathi and AR Bopanna, JJ said,

“In a case of money-laundering where it involves many stages of “placement”, “layering i.e. funds moved to other institutions to conceal origin” and “interrogation i.e. funds used to acquire various assets”, it requires systematic and analysed investigation which would be of great advantage.”

The Court was hearing Chidambaram’s plea against the Delhi High Court order rejecting his anticipatory bail plea in the INX Media case involving alleged irregularities in Foreign Investment Promotion Board (FIPB) clearance given to the INX Media for receiving foreign investment to the tune of Rs.305 crores against approved inflow of Rs.4.62 crores.

Delhi High Court had denied the bail on 2 factors, namely, (i) gravity of the offence; and (ii) the appellant was “evasive” to deny the anticipatory bail. Taking strong exception against the said grounds, Senior Advocate Abhishek Manu Singhvi, argued that,

the “gravity of the offence” cannot be the perception of the individual or the court and the test for “gravity of the offence” should be the punishment prescribed by the statute for the offence committed.

Insofar as the finding of the High Court that “the appellant was evasive to the questions”, the investigating agency Enforcement Directorate cannot expect an accused to give answers in the manner they want and that the accused is entitled to protection under Article 20(3) of the Constitution of India.

The Court, however, noticed that ordinarily, arrest is a part of the process of the investigation intended to secure several purposes. There may be circumstances in which the accused may provide information leading to discovery of material facts and relevant information. Grant of anticipatory bail may hamper the investigation.

“Pre-arrest bail is to strike a balance between the individual’s right to personal freedom and the right of the investigating agency to interrogate the accused as to the material so far collected and to collect more information which may lead to recovery of relevant information.”

Stating that Section 438 Cr.P.C. is to be invoked only in exceptional cases where the case alleged is frivolous or groundless, the Court noticed that in the case in hand, there are allegations of laundering the proceeds of the crime and that the Enforcement Directorate claims to have certain specific inputs from various sources, including overseas banks. It, hence, held that grant of anticipatory bail, particularly in economic offences would definitely hamper the effective investigation.

“Having regard to the materials said to have been collected by the respondent-Enforcement Directorate and considering the stage of the investigation, we are of the view that it is not a fit case to grant anticipatory bail.”

The Court, however, clarified that

“As and when the application for regular bail is filed, the same shall be considered by the learned trial court on its own merits and in accordance with law without being influenced by any of the observations made in this judgment and the impugned order of the High Court.”

Meanwhile, the CBI special court has sent former union minister P. Chidambaram to judicial custody till 19 September in the money-laundering and corruption case related to the INX Media scam.

Supreme Court: The Enforcement Directorate has told the Court that custodial interrogation of senior Congress leader P Chidambaram in the INX media case is required as if his plea for anticipatory bail is given it would affect cases involving Vijay Mallya, Mehul Choksi, Neerav Modi and Zakir Naik.

Disputing the contention of Chidambaram’s lawyers, the agency also argued that the offence of money laundering is against the society, nation and the economy. Solicitor General Tushar Mehta appearing for the probe agency told a Bench of Justice R Banumathi and Justice AS Bopanna,

“Money laundering is an offence against society, nation and economy. Economic offences are gravest offences irrespective of quantum of sentence,”

Countering the arguments of Chidambaram’s advocates Kapil Sibal and Abhishek Manu Singhvi that Prevention of Money Laundering Act (PMLA) offences with seven years of punishment is not a grave offence because as per the Code of Criminal Procedure grave offences entail death penalty and life, Mehta said money laundering offences are “grave”. He said,

“Chidambaram’s counsels have argued that gravity of an offence is subjective. PMLA offences may not be grave for them but the Courts have consistently held that economic offences are grave in nature. Gravity is a relative concept. Quantum of punishment is not relevant. What’s important is what will be the impact of your offence in society. Money laundering is an offence against the society, nation and economy. Economic offences are gravest offences irrespective of quantum of sentence,”

The Court was hearing Chidambaram’s plea against Delhi High Court’s order denying anticipatory bail to him in a case being probed by the ED.

SG also objected to the proposition made by Chidambaram’s counsel Kapil Sibal to confront him with evidence before presenting it in the court, saying it is “absurd” and would have “devastating results” and is “preposterous”. He added,

“Whether the accused’s reply was evasive or not is decided by investigating agency and not by the court”

SG also contended that if accused at large is confronted with the evidence collected, then the agency will have exposed its evidence and witnesses and it will give a chance to the accused to tamper with evidence and erase the money trail.

“The investigating agency has absolute discretion to what extent to reveal the evidence to the accused. It is best to confront the accused with evidence when he is in custody,”

He further said that investigation is an art where the agency brings the accused to divulge details and not a mere question and answer format or an interview. He also argued that if given an anticipatory bail, Chidambaram may erase the money trail, influence the witnesses and tamper with evidence.

“It’s impossible to investigate when he’s armed with anticipatory bail. It’s ED’s right and duty to unearth the truth. It would be difficult for the ED to catch him if he is under a protective umbrella and best way to elicit truth is when an accused is not under a protective umbrella,”

In 2017, the Central Bureau of Investigation had registered an FIR alleging irregularities in the Foreign Investment Promotion Board (FIPB) clearance was given to INX Media to the tune of Rs 305 crore in 2007 when Chidambaram was the Union finance minister.

Following the FIR filed by CBI, ED had filed a case of money laundering against him.

Supreme Court: The bench of R Banumathi and A S Bopanna, JJ has extended till tomorrow the interim protection from arrest granted to senior Congress leader P Chidambaram in a money laundering case filed by the Enforcement Directorate in the alleged INX media scam.

The Court was hearing a Special Leave Petition (SLP) moved by Chidambaram against the Delhi High Court order denying him anticipatory bail in the ED case. The hearing in the case will continue tomorrow.

Solicitor General Tushar Mehta is likely to make submissions on the application filed by the Kapil Sibal, counsel of Chidambaram, seeking a direction to the Enforcement Directorate (ED) to produce his client’s statement recorded by them in the case.

A Special court had yesterday extended the CBI remand of the Congress leader by four days in a corruption case filed by the CBI in INX media scam. The agency had sought an extension contending that they have to “unravel the larger conspiracy”.

In 2017, the CBI had registered an FIR alleging irregularities in the Foreign Investment Promotion Board (FIPB) clearance given to INX Media to the tune of Rs 305 crore in 2007 when Chidambaram was the Union finance minister. Following the FIR filed by CBI, ED had filed a case of money laundering against him.

Supreme Court: The bench of R Banumathi and A S Bopanna, JJ has extended the protection from arrest given to former finance minister P Chidambaram in the INX Media money laundering case lodged by the Enforcement Directorate till Tuesday. The bench also dismissed the petition filed by senior Congress leader P. Chidambaram for anticipatory bail in the corruption case lodged by the Central Bureau of Investigation (CBI), saying the plea has become “infructuous” as he had already been arrested.

The bench will continue hearing on Tuesday the petition of Chidambaram challenging the Delhi High Court order which had rejected his anticipatory bail plea in the money laundering case.

Senior advocate Kapil Sibal, appearing for Chidambaram completed his arguments and said he will file the rejoinder to the ED’s counter affidavit.

Solicitor General Tushar Mehta, appearing for ED, said he will advance his arguments Tuesday and the bench posted the matter for hearing at noon tomorrow.

During the pre-lunch session, Sibal said that fair trial and fair investigation were part of Article 21 and the court must protect the fundamental right of liberty of Chidambaram. He strongly objected to Mehta’s argument to place on record certain documents in sealed cover for the perusal of the bench.

He said that Chidambaram was examined thrice by the ED — on December 19, 2018, January 1, 2019 and January 21, 2019 — but the questions related to the allegations levelled by the ED against him were not put to him.

The CBI had registered an FIR on May 15, 2017, alleging irregularities in the Foreign Investment Promotion Board (FIPB) clearance granted to the INX Media group for receiving overseas funds of Rs 305 crore in 2007 during Chidambaram’s tenure as the finance minister.

Thereafter, the ED lodged a money laundering case against him in 2017.

Sibal said FIPB consisted of six secretaries of the government, and Chidambaram had only signed the approval as the then finance minister. He further argued,

“The ED has alleged the use of shell companies in the matter but no such firm is directly or indirectly connected to Chidambaram,”

He also said that Chidambaram was not named in the ED’s FIR and no allegations were levelled against him.

Chidambaram, 73, headed the ministries of finance and home during the UPA regime.

Supreme Court: The Court has said that it will hear the appeal filed by former union minister P Chidambaram against the Delhi High Court’s order rejecting his anticipatory bail plea in the INX media case being probed by the CBI on August 26.

During the hearing, when the Court asked litigant’s advocate Kapil Sibal if he wants to argue, he said, “Yes, I want to argue.” Citing the notice posted by the probe agency on Tuesday outside Chidambaram’s residence asking him to present himself within two hours of the receipt of the summon, Sibal said his client moved the Supreme Court soon after the development and also intimidated the CBI. Sibal added that his client’s right under Article 21 cannot be denied. He said,

“Chidambaram is in five days of police remand by the CBI. I challenge that order,”

After hearing the arguments from both the sides, Justice R Banumathi said that the appeal filed by Chidambaram will be heard on August 26. “In ED matter Chidambaram has not been arrested,” she said.

On August 21, the Delhi High Court had dismissed Chidambaram’s plea for anticipatory bail. The Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) had issued look-out notices against him on Wednesday in the INX media case. A special anti-corruption court on Thursday sent the Congress leader to CBI custody till August 26.

In 2017, the CBI had registered an FIR alleging irregularities in the Foreign Investment Promotion Board (FIPB) clearance given to INX Media to the tune of Rs 305 crore in 2007 when Chidambaram was the Union Finance Minister.

Supreme Court: The bench of Arun Mishra and UU Lalit, JJ has cancelled the registration of Amrapali Group of Companies under RERA for defrauding homebuyers. The Court also cancelled the various lease deeds granted in favour of Amrapali Group of Companies by Noida and Greater Noida Authorities for projects in question.

“Because of their failure to fulfil the obligations towards the buyers and the serious kind of fraud which has been played by them upon the home buyers, the registration of Amrapali group of companies under the Real Estate Regulation and Development Act, 2016 deserves to be cancelled.”

The Court noticed that no accounts were prepared w.e.f. the years 2015-2018 and money withdrawn was diverted during the said period. The Statutory Auditor, Anil Mittal failed in duty and was part of fraudulent activities as found in the Forensic Report. The money obtained from banks was diverted to unapproved uses such as for the creation of personal assets of Directors, creation of assets in closely held companies by the Directors along with their partners and relatives, for personal expenses of Directors, to give advances without carrying interest for several years. There was total non-monitoring by the bankers.

“The Noida and Greater Noida Authorities were grossly negligent in reviewing and monitoring the progress of the projects and in collusion with leaseholders failed to take action concerning nonpayment of dues and illegally permitted the group to sub-lease the land without payment of dues. Bogus allotments of flats were made. There were other irregularities galore.”

Below are some of the important directions issued by the Court,

Noida and Greater Noida Authorities shall have no right to sell the flats of the home buyers or the land leased out for the realization of their dues. Their dues shall have to be recovered from the sale of other properties which have been attached. The direction holds good for the recovery of the dues of the various Banks also.

NBCC has been appointed to complete the various projects and hand over the possession to the buyers. The percentage of commission of NBCC is fixed at 8 percent.

The home buyers are directed to deposit the outstanding amount under the Agreement entered with the promoters within 3 months from today in the Bank account opened in UCO Bank in the Branch of this Court. The amount deposited by them shall be invested in the fixed deposit to be disbursed under the order of this Court on phase-wise completion of the projects/work by the NBCC.

Various Companies/ Directors and other incumbents in whose hands money of the home buyers is available as per the report of Forensic Auditors, should deposit the same in the Court within one month. The last opportunity of one month is granted to deposit the amount and to do the needful failing which appropriate action shall be taken against them.

Concerned Ministry of Central Government, as well as the State Government and the Secretary of Housing and Urban Development, should ensure that appropriate action is taken as against leaseholders concerning such similar projects at Noida and Greater Noida and other places in various States, where projects have not been completed.

Senior Advocate R. Venkataramani has been appointed as the Court Receiver. The right of the lessee shall vest in the Court Receiver and he shall execute through authorized person on his behalf, the tripartite agreement and do all other acts as may be necessary and also to ensure that title is passed on to home buyers and possession is handed over to them.

Noida and Greater Noida Authorities are also directed to execute the tripartite agreement within one month concerning the projects where homebuyers are residing and issue completion certificate notwithstanding that the dues are to be recovered under this order by the sale of the other attached properties. Registered conveyance deed shall also be executed in favour of homebuyers, they are to be placed in the possession and they shall continue to do so in future on completion of projects or in part as the case may be.

The Court also said,

“In view of the finding recorded by the Forensic Auditors and fraud unearthed, indicating prima facie violation of the FEMA and other fraudulent activities, money laundering, we direct Enforcement Directorate and concerned authorities to investigate and fix liability on persons responsible for such violation and submit the progress report in the Court and let the police also submit the report of the investigation made by them so far.”

It also directed the Institute of Chartered Accountants of India to initiate the appropriate disciplinary action against Anil Mittal, CA for his conduct as reflected in various transactions and the findings recorded in the order and his overall conduct as found on Forensic Audit. The proceedings are to be completed within 6 months.

An FIR was registered by the CBI in 2017 under Section 13 of the Prevention of Corruption Act, 1988 and Sections 120B read with Sections 420, 467, 468 and 471 of the Penal Code, 1860 against a company Sterling Biotech Ltd. Sole allegation against appellant was that he was involved in erasing and taking a backup of certain digital data/records pertaining to one Ghanshyam Pandya, and that he was in possession of certain documents/records/property relating to money laundering. His residential premises were searched and the respondent sealed his 4 mobile phones, 2 pen drives, 2 mobile tablets, and 1 laptop. The Adjudicating Authority passed an order under Section 8(3) of Prevention of Money Laundering Act, 2002 confirming retention of the property. Hence, the present appeal.

Dr Shamsuddin, Advocate appearing on behalf of the appellant contended that Section 20(1) of PMLA mandates that the officer authorised by Director is under an obligation to record the ‘reason to believe’ in writing as to why the seized property is to be retained for adjudication under Section 8. Further, the authorised officer must forward a copy of the order for the retention of the property along with the material in his possession in a sealed envelope to the Adjudicating Authority. On the basis of the ‘reason to believe’ recorded under Section 20(1) and the order passed under Section 20(2), Adjudicating Authority must record a satisfaction under Section 20(4) that the property is prima facie involved in money laundering and is required for adjudication under Section 8. There was no compliance of the statutory mandates.

The Court noted that nothing had been brought on record to prove that the seized properties had any nexus or link whatsoever with money laundering. Settled law states that if a particular thing is to be done in a particular manner, it must be done in that manner only and none other. Reliance in this regard was placed on Dipak Babaria v. State of Gujarat, 2014 (3) SCC 502.

Counsel for the respondent Mr Nitish Rana admitted that appellant was not arrayed in the FIR nor any criminal complaint was pending against him. More than one and a half year had passed and still, nothing was revealed against the appellant.

It was opined that Section 8(3)(a) PMLA provides that the attachment or retention of property or record seized shall continue during the investigation for a period not exceeding 90 days. Since the said period had already elapsed, and no prosecution complaint had been filed against the appellant, therefore it was held that the seizure had lapsed. Accordingly, the respondent was directed to return the property retained by it to the appellant. [Arvind Gupta v. Deputy Director Directorate of Enforcement, Delhi, 2019 SCC OnLine ATPMLA 3, Order dated 25-03-2019]

Appellate Tribunal for PMLA Act: The Coram of Ananya Ray (Member) directed to keep an appeal filed against an order directing attachment of properties bought from proceeds of money laundering, till final disposal of the matter by Special Court.

The present appeal was filed against order vide which attachment of 14 immovable properties and 2 movable properties, which were alleged as having been acquired from the proceeds of scheduled offences under Prevention of Money Laundering Act, 2002, was confirmed.

Appellant’s main plea was that he had already been tried by the Sessions Court and been acquitted by it. Hence, once there was no scheduled offence, there could not be proceeds of crime, and therefore attachment of the properties was liable to be set aside.

The Tribunal noted that Section 43(1) of the PMLA empowers the Central Government to designate one or more Courts of Session as Special Court for the trial of offence punishable under Section 4 PMLA. Further, Section 43(2) of the Act prescribes that the Special Court shall also try an offence (other than the offence of money laundering) with which the accused may have been charged under the Code of Criminal Procedure, 1973. A joint reading of these provisions indicated that the Special Court has must try the offence of money laundering as well as the scheduled offence.

It was opined that the Session Courts had not examined Section 4 of PMLA along with the schedule offence as mandated under Section 44 of PMLA. Hence, it could not be said that appellant’s acquittal had attained finality. Since the appellant’s case had already been taken cognizance of by the Special Court, therefore the instant appeal was directed to be kept in abeyance until final disposal of the case by the Special Court.[Bharat Yadav v. Deputy Director, Directorate of Enforcement, Patna, 2019 SCC OnLine ATPMLA 2, decided on 03-04-2019]

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: The coram of Manmohan Singh, J. (Chairman) and G.C. Mishra (Member) ordered to keep an appeal filed before this Tribunal in abeyance until the Special Court, which had already taken cognizance of the matter at hand, finally disposed of the case.

Facts of the case were that one Mr Anup Prakash Garg who was a Director in Andhra Bank from had hatched a criminal conspiracy with Sterling Biotech Ltd. (SBL) and cheated Andhra Bank to the tune of Rs 5382 crores, which was received by him as gratification for favouring SBL group in his capacity as Director of Andhra Bank. The case of the Enforcement Directorate was that the said amount was received by Mr. Garg in cash, and was layered into the appellant company set up by him with his son, wife and his daughter-in-law who were Directors in the appellant company. Aggrieved by the ED’s case in Special Court, the instant appeal was filed.

The preliminary objection taken by counsel for the respondent Mr Nitesh Rana was that ED had filed a case in the Special Court under Prevention of Money Laundering Act, 2002 and the Special Court had already taken cognizance of the same. Therefore, it was pleaded that this case be kept pending till disposal by the Special Court.

The Court noted that the entire scheme of PMLA provides that only a Special Court can adjudge on the offence of money laundering. Section 44(1)(a) of PMLA specifically states that an offence punishable under Section 4 and any scheduled offence connected to the offence under that Section shall be triable by a Special Court. Reliance in this regard was placed on Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1.

In view of the above, it was held that only the Special Court had the power to decide on the offence of money laundering.[RAG Buildtech (P) Ltd. v. Deputy Director, Directorate of Enforcement, Delhi, FPA-PMLA-2548/DLI/2018, decided on 26-03-2019]

Westminster Court, United Kingdom: A provisional arrest warrant has been issued against the fugitive diamond merchant, Nirav Modi for his extradition in a money laundering case.

He is the main accused in the Punjab National Bank scam case.

The Westminster Court has issued the arrest warrant against Nirav Modi as part of processing this extradition request. The warrant is provisional, and he is entitled to obtain bail.

Background of the scam:

As reported by Hindustan Times, Two PNB employees sent unauthorised letters of undertakings (LoUs), essentially bank guarantees, to foreign branches of Indian lenders, on behalf of firms related to Nirav Modi and the Gitanjali Group. The LoUs basically told these other lenders: Lend money to Nirav Modi firms so that they can pay for their imports. If they don’t pay up, we will make good this payment.

In the PNB fraud case, the bank employees had sent these guarantees in the absence of credit limits and collateral security (in Modi’s case). Secondly, they didn’t make an entry in the bank’s core banking system – the software used to support a bank’s most common transactions, which also acts as a record keeper.

G.S.R. 108(E)— In exercise of the powers conferred by sub-section (1), read with clauses (i), (j), (jj), (jjj) and (k) of sub-section (2) of Section 73 of the Prevention of Money-laundering Act, 2002 (15 of 2003), the Central Government hereby makes the following rules further to amend the Prevention of Money- laundering (Maintenance of Records) Rules, 2005, namely:—

1. (1) These rules may be called the Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2019.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 (hereinafter referred to as the said rules), in rule 2, in sub-rule (1),-

(i) for clause (aaa), the following clause shall be substituted, namely:-‘(aaa) “Aadhaar number” shall have the meaning assigned to it in clause (a) of Section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016);’

(ii) clauses (aac) and (aad) shall be omitted;

(iii) in clause (d),

(a) after the words “driving licence,”, the words “proof of possession of Aadhaar number” shall be inserted;

(b) after the third proviso, the following proviso shall be inserted, namely:-“Provided also that where the client submits his proof of possession of Aadhaar number as an officially valid document, he may submit it in such form as are issued by the Unique Identification Authority of India;”Please refer the link for detailed notification:NOTIFICATION

Mallya said he intends to appeal the decision, “After the decision was handed down on December 10, 2018, by Westminster Magistrates Court, I stated my intention to appeal. I couldn’t initiate appeal process before a decision by Home Secretary. Now I’ll initiate the appeal process”.

Mallya has 14 days’ time to appeal against his extradition in a higher court.

Westminster Magistrates’ Court: A Single Judge Bench comprising of Senior District Judge (the Chief Magistrate) Emma Arbuthnot accepted the Government of India’s (GoI) extradition request for tycoon Vijay Mallya to face trial on charges of fraud and money laundering.

The Court considered the vast evidence placed on record by GoI and relying on the case of Devani v. Republic of Kenya, [2015] EWHC 3535 opined that there was a prima facie case that the funds loaned by Indian banks to Mallya were misused. A number of email trails were relied on to rule that he had misrepresented his net worth to the banks.

It was further held that there was a prima facie case of a conspiracy to defraud which involved not just the Kingfisher Airlines executives but also some bankers. There was clear evidence of misapplication of loan funds and thus there was a prima facie case of conspiracy to launder money was found against Mallya.

The Court also took note of Mallya’s concerns that the Central Bureau of Investigation (CBI) which had investigated this case was susceptible to political interference and was a “caged parrot” speaking with its master’s voice, especially by the ruling party BJP. The said concern was dismissed holding that there was no evidence showing that the present extradition request was, in fact, being made to prosecute him for his political opinions.

It was ruled that Mallya’s allegations against the professional integrity of Mr Rakesh Asthana, who leads the CBI and was the prosecutor of his case, was without any basis since the Supreme Court of India had cleared Mr. Asthana of allegations made against his integrity and there was no reliable or significant evidence produced by Mallya to support his averment.

Mallya argued against his extradition, saying Indian jails do not have proper air and light. The Court applied Othman criteria of Othman v. UK, (2012) 55 EHRR 1 to decide whether Mallya’s extradition would be compatible with his Convention rights within the meaning of the Human Rights Act, 1998. It viewed the video submitted by GoI and found clear assurance that the cell for Mallya’s lodging – Barrack No. 12 in Arthur Road Jail, Mumbai – had requisite living conditions where he would be able to obtain his medical treatment.

One might recall that the learned Judge’s demand for a video of Mallya’s barrack did not go down well with India and earlier this year PM Modi had told his British counterpart Theresa May that it was not right for Courts in her country to ask about the condition of Indian jails “as we still have the prisons where they jailed our leaders like Mahatma Gandhi and Jawaharlal Nehru.”[1]

Bearing in mind the findings of prima facie case, no evidence that the prosecution was politically motivated, and no lack of fair trial, Mallya’s contention of abuse of process was also dismissed.

In view of the above, Mallya’s case was sent to the United Kingdom Home Office (the British equivalent of Home Ministry) where Home Secretary, Sajid Javid would decide whether to order his extradition based on the verdict of the Magistrates’ Court.[Govt. of India v. Vijay Mallya, decided on 10-12-2018]

G.S.R. 456(E).—In exercise of the powers conferred by sub-section (1) read with clause (i), clause (j), clause (jj) and clause (k) of sub-section (2) of Section 73 of the Prevention of Money-laundering Act, 2002 (15 of 2003), the Central Government in consultation with the Reserve Bank of India hereby makes the following rules further to amend the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, namely:

1. (1) These rules may be called the Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2018.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, in sub-rule (14) of Rule 9, –

(a) in clause (i), for the words, brackets and figures “sub-rules (1) to (13) above”, the words, brackets and figures “sub-rules (1) to (13) and sub-rule (15)” shall be substituted;

(b) after clause (i), the following clause shall be inserted, namely :

“(ia) The guidelines issued under clause (i) shall also include appropriate exemptions, limitations and conditions and alternate and viable means of identification, to provide account based services to clients who are unable to undergo biometric authentication owing to injury, illness or infirmity on account of old age or otherwise, and such like causes.”;

(c) for clause (ii), the following clause shall be substituted, namely :

“(ii) Every reporting entity shall formulate and implement a Client Due Diligence Programme, incorporating the requirements of sub-rules (1) to (13) and sub-rule (15) and guidelines issued under clause (i) and (ia).”.

Additional Solicitor General Tushar Mehta concluded his arguments before the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, AM Khanwilkar, Dr. DY Chandrachud and Ashok Bhushan, JJ on Day 28 of the Aadhaar Hearing. He was then followed by Senior Advocate Rakesh Dwivedi.

Below are the highlights from Day 28 of the Aadhaar Hearing:

ASG: Prevention of Money Laundering Act (PMLA) amendment was made considering the larger public interest. The PMLA Rules are not ultra vires the Aadhaar act or RBI circular. There’s no challenge with respect to the PMLA rules being ultra vires the PMLA.

Sikri, J: Rule 9(4) is challenged on the ground of proportionality. What is the need to make Aadhaar compulsory when there are other officially valid docs available?

ASG: It is to prevent impersonation.

Chandrachud, J: What about Arvind Datar’s submission that PMLA Rules are ultra vires Act; there is no provision under PMLA to render a validly opened account non operational; why is Aadhaar linking extended mutual funds and insurance policies as well.

Sikri, J: Anyone can become a reporting entity under the PMLA, not just banks. How is this proportional?

ASG: We follow zero tolerance policy when it comes to money laundering. Public interest is interest of the nation here.

CJI & Bhushan, J: How is blocking accounts if Aadhaar is not provided not in violation of Article 300A of the Constitution?

ASG: It’s a reasonable restriction.

Chandrachud, J: Is the penal consequence authorized by the Act or rules itself?The Act only talks about verification of bank accounts.

ASG: The rules are part of the Act. Penal consequence is just an ancillary provision and can be provided by the rules. (Chandrachud, J doesn’t agree) Only plenary law is considered with respect to “procedure established by law” is wrong. The rules can also be considered. Freezing of bank account is not a penalty but just a consequence.

Sikri, J: It is a penalty. You’re depriving someone of their property.

ASG: The point of such a consequence ( freezing of bank accounts) is so that money launderers render their account non operational.

CJI: Our only question is whether the consequence is mandated under law or is it an overreach.

ASG:

Terror financing destroys the root of our democracy and threatens our national security. There are huge cross border implications. Both in and outside India this kind of menace happens. Therefore it’s important to link bank account with Aadhaar.

Scheme of PMLA is three fold:

Zero tolerance to money laundering

Curbing black money

Reaching beneficiaries.

There will be minor inconvenience to some citizens but it is in the interest of the nation. Public interest and “perceived Privacy” should be weighed before taking a decision.

Rakesh Dwivedi: People have voluntarily signed up for Aadhaar. GOI has ample means to surveil. No need of Aadhaar.

Chandrachud, J: Technology is a very powerful enabler of mass surveillance. Elections of countries are being swayed with the use of data and technology.

Chandrachud, J: The Act does not preclude UIDAI to acquire that kind of tech.

Dwivedi: It’s an offence under section 33. The only purpose of Aadhaar is authentication and nothing else. There is no power provided under the Act to analyze data. Meta data is also limited. The meta data is of authentication records and it does not reveal anything about an individual. Meta data consists of authentication request, result of authentication and the time of authentication only.

Sikri, J: That is enough to reveal a lot about an individual.

Dwivedi: The authentication request will show from where the authentication request came (for example from Apollo hospital) but there’s no way to know the location from where it came. Also the identity of the person who requested authentication is not revealed.

Chandrachud, J: The requesting entity can store the data, considering there is not even a robust data protection law. Commercial information about an individual is also a gold mine. Surveillance doesn’t have to be interpreted in the traditional sense.

Dwivedi: Millions like me do not care about privacy.

Chandrachud, J: Giving fingerprints for a limited particular purpose is okay. Under Aadhaar, fingerprints are means for storing data in a central database for the purpose of authentication. Thats a problem.

Dwivedi: The biometrics are encrypted. Also the data is not shared with anyone. Even EU data protection law does not have the kind of protection that Aadhaar act has. There is no reasonable expectation of privacy wrt demographic information. I understand if people have a problem with the implementation and enforcement of the Aadhaar act. But there’s no problem with the law and the technology.

On Day 27 of the Aadhaar hearing, ASG Tushar Mehta continued with his submissions before the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, AM Khanwilkar, Dr. DY Chandrachud and Ashok Bhushan, JJ.

Below are the highlights from Day 27 of the Aadhaar Hearing:

ASG:

The argument that the Aadhaar act was made in violation of interim orders of the SC has already been refuted in the case Binoy Viswam (Aadhaar PAN linking judgment). Only the challenge to article 21 is open with respect to Aadhaar. All the other aspects have already been dealt with in Binoy Viswam. It has already been proved that Aadhaar linking with PAN will help curb money laundering and black money, and prevent tax evasion. This question is not open to challenge anymore as it has already been decided by this court.

Biometrics will help curb the growth of shell companies. This is again a facet of reasonableness and proportionality.

Balancing of interests is also a facet of proportionality, which was propounded in the judgement of modern dental college.

Aadhaar will help law enforcement curb terrorism.

There’s no random scrutiny of people in the name of Aadhaar. The exercise of linking Aadhaar with bank, phone etc is only done to weed out fake or duplicates.

IT Dept uses third party information to identity cases of defaulters. Rule 114b requires quoting of PAN to file returns. A person can easily say that they don’t have PAN and then evade taxes. Pan Aadhaar linkage will prevent this kind of tax evasion.

A statutory measure should not be excessive with respect to the object it seeks to achieve and the court will not look into the legislature’s wisdom till it’s shockingly disproportionate.

If there’s a competition between right to privacy and the right to information of a citizen, the former has to be subordinated with the latter for the sake of larger public interest. The fair needs of the society and the nature of social control has to be kept in mind when enforcing reasonable restrictions.

Legitimate state interest is enough. No need to prove compelling state interest. The word ‘necessary’ is not synonymous with ‘indispensable’. It only has to be proved that it’s necessary for larger public interest. If there’s an overwhelming public interest then there’s no need to apply the “least intrusive” test.

Menace of hawala transactions and money laundering is a global concern.

Sikri, J: There’s no doubt that money laundering is a problem. The only question that needs to be answered is how Aadhaar will prevent money laundering.

ASG: Prevention of Money Laundering Act not a toothless law anymore. The formation of rules flows from section 12(c) of the Act.

On Day 26 of the Aadhaar Hearing, Attorney General KK Venugopal completed his submissions before the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, AM Khanwilkar, Dr. DY Chandrachud and Ashok Bhushan, JJ. Additional Solicitor General Tushar Mehta began his arguments before the Bench.

Below are the highlights from Day 26 of the Aadhaar Hearing:

AG: Section 59 of the Aadhaar Act, 2016 provides retrospective effect. (Cites cases to show that a particular action can be validated by a subsequent Act, as it happened in the case of Aadhaar. Reads out the third version of the Aadhaar enrollment form. Reads out the content and says it’s free and voluntary and has provisions for taking informed consent.)

Chandrachud, J: The first two forms did not have any reference to biometrics. It was only inserted in the third form.

AG: The CBI had gone to Bombay high court to obtain biometrics in connection of a rape, since UIDAI had refused to provide them as biometric data cannot be shared without the individual’s consent. The state has no interest in collection of biometrics except for the benefit of the individual himself. Emphasizes that invasion is privacy. When there was no right to privacy, the government acted in a bonafide manner when they enacted Aadhaar. Therefore that action cannot be said to be void by retrospective action.

Chandrachud, J: the question of privacy was irrelevant in MP Sharma. Only the first part of Kharak Singh affirmed that there’s a right to privacy. The subsequent judgments that affirmed privacy relied on the first part of Kharak Singh.

AG completes his submissions.

ASG Tushar Mehta:

The challenge to section 139aa was examined by this court. Apart from right to privacy, all other aspects were considered.

In Privacy Judgment, all nine judges have affirmed that right to privacy is not absolute.

J. Chandrachud laid down the three tests under which privacy can be invaded in particular cases. Five out of nine judges have upheld the principles of legitimate state interests and proportionality.

A legislation has to pass all four tests to be valid. Three laid down in Privacy Judgment and also the test of manifest arbitrariness.

All these tests were examined in Binoy Viswam although in the context of Article 19.

Another test will be the test of larger public interest.

All the demographic information that is required under Aadhaar was already being taken since 1989 under section 139a of the income tax (for obtaining PAN).

Left hand thumb impression was also taken for people who can’t sign. Bench says there’s no collection of biometrics and there’s no authentication taking place.

Those who have already taken PAN do not have any legitimate interest in withholding information that they have already provided for obtaining PAN.

1.3 lakh cases of duplicate PAN were found. Says that PAN can be misused for the purpose of tax evasion, black money , setting up shell companies etc. Aadhaar will ensure that one person has one PAN by interconnecting the PAN-aadhaar database.

Even companies need pan cards. And the documents used for obtaining PAN can be easily forged. Therefore, Aadhaar with the use of Biometrics will prevent that.

Fake PAN cards are used to create shell companies abroad and Aadhaar can make sure that this does not happen.

Uniqueness of pan is important. Deduplication test needs to be conducted. Demographic way of verifying de duplication is not fool proof. Hundred percent verification is possible with Aadhaar as biometrics and Iris scans will be used.

There’s a huge gap between the no.of PAN holders and the entire tax base.

Finance minister has described financial frauds in his Feb speech. Also our tax collection is very low in our GDP ratio. We are a largely tax non compliant country and the burden of people who evade taxes falls on honest tax paying citizens.

17.4 cr out of 36 cr tax payers have already linked their Aadhaar with PAN. Even transgenders are included without having to disclose their gender.

Bhushan, J: You’ll have to prove there’s no violation of privacy. In substance Puttaswamy and Shaira bano retrospectively ratifies what was held in Binoy Viswam.

On Day 25 of the Aadhaar Hearing, Attorney General KK Venugopal continued arguing before the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, AM Khanwilkar, Dr. DY Chandrachud and Ashok Bhushan, JJ on the safety aspect of biometrics.

Below are the highlights from Day 25 of the Aadhaar Hearing:

AG: Finger imaging technology is 99.9% accurate. Biometrics is a very safe and accurate technology and can solve problems such as money laundering, bank frauds, income tax evasion etc.

Sikri, J: Bank frauds weren’t caused because of multiple identities.

Chandrachud, J: Aadhaar will not prevent an individual from operating layers of commercial transactions. It won’t prevent bank frauds either. Can only help in providing benefits under section 7 of Aadhaar Act, 2016 at most. Mere legitimate state interest does not ensure proportionality. Your submission lacks this nuance.

AG: Aadhaar will help in income disparity and eliminating poverty.

Sikri, J: The gap is widening. More than 70% wealth is in the hands of 1%.

Chandrachud, J: Proportionality is key. How far can the state cast the net of Aadhaar. Only section 7 seems to be understandable.

Sikri, J: You cannot assume that the entire population consists of defaulters and violaters. What is the logic in linking all sim cards to aadhaar.

AG: Terrorism will be curbed by doing this.

Chandrachud, J: Do terrorists apply for sim cards? It’s a problem that you’re asking the entire population to link their mobile phones with Aadhaar.

AG:

We are asking for minimal information via Aadhaar. Most information is already available in public domain. The question is to what extent has Aadhaar invaded privacy? It’s as minimum as possible.

Aadhaar is required only for section 7 benefits, banks, income tax and mobile nos. Apart from that it’s purely voluntary.

Court needs to balance two competing rights. Maintains that right to food, right to employment, right to medical care, etc trump right to privacy. Can right to privacy be invoked to deprive other sections of the society?

The invasion to privacy is so minimal that it can’t even be considered an invasion. In X v. Hospital Z right to privacy was balanced against right to information. The appellant ( a man) had HIV and had the right to non disclosure. However, the court had held that his fiance had the right to know of his disease.

Sikri, J: This is the case of balancing the rights of two person. In the case of Aadhaar, you’re giving a person food in exchange of their privacy.

AG: The bare minimal requirements for identification for an individual is alone taken and to the extent that the technology permitted. Should people have basic right to life under article 21? Can it ever be challenged on the ground that we have a right to privacy?

Bhushan, J: Minimal invasion is subjective. What maybe minimal for one might not be minimal for you.

AG: Please look at the information that is taken and look at it from objective standards. We have to look at the larger interest of the country.

Chandrachud, J: We have to look at three things: informed consent, purpose limitation, and enough security.

AG: The CIDR is completely safe.

Chandrachud, J: We have to look at what proportionality means. Proportionality hasn’t been defined in the Privacy judgement.

AG: Without the minimal information that is collected, the entire architecture of Aadhaar couldn’t have been framed. Sections 29 a and b contain purpose limitation. Aadhaar was voluntary when it was rolled out, therefore there’s no question of violation of any right.

Sikri, J: Is it permissible to say that I’ll give you food, shelter, etc but you’ll be my slave?

AG: Slavery is not permissible.

Chandrachud, J: Your argument to save the validity of the act does not take into account what happened before the act was passed. There was no protection for the citizens that time. There’s no retrospective effect also. What about collection of data by state Governments?

AG: State Governments act as the agent of the Central Government.

Khanwilkar, J: Is biometrics locking option available for people who don’t want to use Aadhaar?

Shyam Divan intervenes: There’s no way to opt out of the Aadhaar system.

When the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, AM Khanwilkar, Dr. DY Chandrachud and Ashok Bhushan, JJ, assembled after Holi Break for Day 14 of the Aadhaar hearing, Senior Advocate Arvind Datar began his submission by asking the Court to consider extending the deadline for linking to avoid a fait accompli. The present deadline is March 31, 2018. Senior Advocate Shyam Divan also added that the Supreme Court’s interim order also says that the arrangement is to last till the conclusion of the case. However, Attorney General KK Venugopal asked the Court to consider the question in the last week of March.

Below are the highlights from Arvind Datar’s submissions on Day 14 of the Aadhaar Hearing:

Main Arguments to be advanced by Arvind Datar:

Challenge to Linking Bank Accounts to Aadhaar as per Rule 9 of Prevention of Money-laundering Act, 2002 (PMLA)

Aadhaar Act, 2016 could not have been a money bill. Rule 9 violates Article 14. And in the alternative, if the Aadhaar project is upheld, it can’t go beyond subsidies.

All State action before the Aadhaar Act, 2016 cannot be saved. There has been a continuous and flagrant violation of this Court’s orders, which should not be condoned.

Challenge to Linking Bank Accounts to Aadhaar as per Rule 9 of Prevention of Money-laundering Act, 2002 (PMLA):

There is a Master Direction, that provides for customer identification procedures. The Master Circular covers all issues with respect to bank accounts. The impugned rules give contradictory directions (Aadhaar linking).

Under the master circular, there exist provisions for due diligence both at the time of opening the account and subsequently. Suspicious transactions are red flagged and investigated.

There is a provision of the master circular that does not require multiple proofs of ID. The customer can submit one of six possible IDs. This conflicts with the Rules, which only allows Aadhaar.

The due diligence requirements under the circular, which specify the kinds of suspicious situations under which monitoring of accounts can be done.

The Circular completely covers the field. The Circular says that you can open an account with one of six IDs. The core question is that if the Master Circular gives you a choice of six IDs, can Aadhaar then be made the only mandatory ID under separate rules.

Aadhaar and PAN or Form 60 are necessary to be provided for bank accounts.

Aadhaar is only required to establish the identity of the individuals not the companies. You cannot ask for Aadhaar of the individuals in the company.

The impunged rules say that if the Aadhaar number is not provided then the accounts will stop operating. This is in violation of SC order which made Aadhaar voluntary and limited to only specific schemes. It also violates Article 300A as it deprives a person of his property.

Chandrachud, J: They are not forfeiting the property. The amount in the account will not get forfeited.

Arvind Datar: They are depriving me of the property- deprivation maybe temporary or permanent.

Even if Aadhaar Act is assumed valid, the enrolment form says that Aadhaar is free and voluntary. But now Aadhaar has been made mandatory for everything.

Aadhaar is entitlement. I am entitled to passport. I may or may not obtain a passport.

Law recognises two categories of people- who want an Aadhaar and who do not want an Aadhaar. There’s a choice. But not so in case of PMLA rules. A person runs a risk of getting his account closed.

Chandrachud, J: The disability to be able to operate bank accounts doesn’t occur from Aadhaar Act. It does in case of PMLA rules.

Arvind Datar: Aadhaar is supposed to be ‘some kind of national detergent’ which will get rid of the fake PAN cards and fake bank accounts. You can’t make a group as suspects.

CJI: You’re an account holder and have a status. The statute wants you to establish your identity. (Asks if the argument here is that in light of existing KYC identification systems, we do not need another.)

Arvind Datar: There is no reason why 1 billion people are being asked to link their accounts to Aadhaar. There must be some purpose behind it. Any rule made must have a nexus with the Act. As far as rule 9 regarding Aadhaar is concerned, it has no nexus with the Act.

It is not the intention of Government of India that every transaction from every account should be reported. It is only in connection with the money laundering that the Act has nexus with accounts.

The bench will continue hearing the submissions of Senior Advocate Arvind Datar tomorrow who has told the Court that he will finish his arguments by Lunch tomorrow.

Supreme Court: The 3-judge bench of Dipak Misra, CJ and AM Khanwilkar and Dr. DY Chandrachud, JJ refused to grant Karti Chidambaram, the son of former Union minister P Chidambaram, interim protection from arrest by the Enforcement Directorate (ED) in an alleged money laundering case related to INX Media and sought a response from ED.

The Court had, on February 23, refused to stay the summons issued by the ED against Karti Chidambaram — who is presently in CBI custody in the INX Media money laundering case after the CBI said he was “not a common criminal” and his plea for quashing the notice was “a guise for an anticipatory bail plea”. In his fresh writ petition, Karti Chidambaram has challenged the summons on the ground that the ED has no jurisdiction to issue such notices based on the FIR lodged by the CBI.

The ED had registered a case against him and others in May last year. It registered an Enforcement Case Information Report (ECIR), the ED’s equivalent of a police FIR, against the accused named in a CBI complaint. These included Karti Chidambaram, INX Media and its directors, Peter and Indrani Mukerjea. An FIR, filed on May 15 last year, had alleged irregularities in the Foreign Investment Promotion Board (FIPB) clearance to INX Media for receiving Rs 305 crore in overseas funds in 2007 when P Chidambaram was Union finance minister.

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